Gazprom Moves Tamar Closer To LNG Exports

Israel | Oil & Gas | Fri Mar 01, 2013

BMI View: Gazprom 's in-principle agreement to finance a floating liquefied natural gas facility (FLNG) at Israel's offshore Tamar field pu shes the country an important step closer to becoming an LNG exporter. Although a final investment decision (FID) is not expected until the end of 2013, the deal's progress underscores the shifting energy dynamics in the Levant region. Indeed, Israel is only a few years away from achieving a significantly mor e secure energy mix. Furthermore, if Israeli LNG exports become a reality, relations with other key regional players could evolve in a positive way . Turkish-Israeli relations have already warmed in recent weeks over the prospect of natural gas trade.

Russia's Gazprom has signed a non-binding agreement to finance a floating liquefied natural gas facility (FLNG) to service Israel's offshore Tamar natural gas field. If completed, approximately 4.2bn cubic metres (bcm) of natural gaswill be exported every yearfor 20 years-tobe soldto the LNG-hungry Asian markets of Japan, South Korea, China, and India.The construction of the FLNG terminal itself is also important,as it will be one of the first of its kind in the world.

The Tamar field, located about 90km offshore, is expected to enter productionwithin the next few months. Importantly,nearly 70% of the field's productionwillbe strictly reserved for domestic consumption-an important element of improving the country's energy security. Indeed, the country has beenimporting LNG to overcomegapsin its natural gas supply sinceexports from Egypt were cancelled followingthe Egyptian revolution(thesedeliveriespreviously satisfied40% of Israeli demand). Israel has done thisvia an FLNG import buoy supplied by BP . BP's LNG supply contract currently extends through 2013, at which time the Israeli government anticipates replacing such supplieswith the 260bn cubic metres (bcm)of gas reserves from the Tamar field( see our online service, July 26 2012, 'LNG Imports To Provide Security And Flexibility' ).

The Sea of Promise

Major Israeli Offshore Fields

Awaiting Policy Approval

The Israeli government is still trying to strike the right balance with regards to the country's long-term energy security. To be sure, companies are gearing up to export gas from the Tamar and Leviathan field, which has an estimated 453bcm of gas-in-place and is one of the largest gas discoveries for a decade. However, these investments are being made despite the government not having made a final decision on whether or not it should set a ceiling for natural gas exports. Approval by the Netanyahu government is still pending, despite the government's Tzemach committee recommending that the country allow at least 50% of its natural gas to be sold abroad, so long as 450bcm is set aside to secure the next 25 years of domestic natural gas consumption.

Natural Gas Stands To Bolster Energy Security And Regional Relations

Production from the giant Leviathan field is expected from 2016, and could potentially feed Israeli gas exports from 2018. The field holds around 470bcm of proved recoverable gas with potential for additional reserves to be disclosed as additional wells are drilled in 2013. As a result, we can expect the evolution of Israel into a significant gas exporter (assuming government approvals) to have an important knock-on effect for its broader regional relationships.

In anticipation of such changes, we are already seeing the country's bilateral relationship with Turkey begin to evolve. Indeed, Turkey and Israel have reportedly been in talks over the construction of a subsea pipeline to supply the former with gas from the Leviathan field. This development could allow Turkey to diversify its gas imports, which currently come primarily from Russia and Iran. Importantly, such a trade relationship could lead to a warming of relations. These have turned decidedly negative in recent years, largely on the back of the Mavi Marmara incident in 2010, which resulted in the death of nine Turkish activists when Israeli commandos intercepted a Turkish convoy that was attempting to break the blockade of the Gaza strip. The Turkish government has been holding out for an official Israeli apology, something the Netanyahu government continues to refuse to countenance ( see ' Pipeline Project Could Ease Political Tensions',February 19 2013).

While improving relations with Israel's other neighbours will prove considerably harder, positive energy dynamics could certainly aid the normalization of regional economic relationships (recognizing that a more public, political rapprochement may remain out of reach). This is particularly true among the states in the Persian Gulf, which are anticipating rapidly rising gas import bills as they attempt to meet surging domestic consumption. Indeed, the UAE has just decided to build an FLNG import terminal of its own ( see 'Expanded Capacity To Deepen Import Dependence',February 27 2013).

Anticipating LNG Exports

Israeli Natural Gas Production, Consumption, And Net Exports

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